The year 2024 was a pivotal one for India’s alternative investment funds (AIFs), reflecting their enduring appeal to sophisticated investors amidst an evolving economic landscape. Despite facing challenges from a more tempered equity market compared to 2023, AIFs continued to demonstrate their alpha-generation potential. With strategies tailored to navigate market complexities, these funds outperformed traditional benchmarks like the Nifty50 TRI, which posted a modest 10.09% return in 2024.

AIFs have long stood as a symbol of exclusivity and innovation, designed to cater to high-net-worth individuals (HNIs) and institutional investors. Regulated by SEBI since 2012, these vehicles have consistently delivered superior pooled internal rates of return, even as alpha generation by traditional asset management has declined. By September 2024, investor commitments to Category III AIFs surged 77% to ₹1.83 lakh crore, up from ₹1.03 lakh crore a year earlier, underscoring their growing prominence. 

This article takes a deep dive into the performance of 97 AIFs tracked by PMSBazaar, encompassing both long-short and long-only strategies that fall under the overall Category-III umbrella. From category-wide trends to the top performers, we highlight how these funds fared in 2024, compares their results with 2023, and examines the strategies that set them apart. For affluent investors seeking superior risk-adjusted returns, AIFs remain an indispensable asset class.

2024 Performance Overview

The Indian equity market in 2024 unfolded as a story of two distinct halves. The first half witnessed impressive gains across equities and bonds, underpinned by resilient economic expansion and stellar corporate earnings. However, the latter half introduced heightened volatility, as growth decelerated from elevated levels. This shift was influenced by persistently high interest rates and the Reserve Bank of India’s (RBI) proactive measures to rein in inflationary pressures and mitigate credit stress. Global cues such as President Donald Trump’s economic strategy has also stoked fears of global trade wars and high tariffs, dampening sentiments and Indian rupee.

2024 was marked by a relatively muted performance in equity markets compared to the unbridled exuberance of 2023. The Nifty50 TRI delivered a modest 10.09% return in 2024, a decline from its 21.30% gain in 2023. Similarly, the broader S&P BSE 500 TRI posted a 15.81% return, down from an impressive 26.55% in the previous year. This relatively subdued environment underscored the challenges of generating alpha, setting the stage for AIFs to prove their resilience and adaptability.

The performance of long-short funds and long-only funds, both fall under Category-III AIFs, in 2024 reflected this tempered market sentiment, albeit with notable variations between the two categories.

1. Long-Short Funds:

• Average returns for the 29 long-short strategies tracked by PMSBazaar in CY2024 stood at 13.72%, down from 19.21% in CY2023.

• Despite lower absolute returns, long-short funds demonstrated their ability to cushion downside risks through hedging strategies. Their category performance outpaced traditional benchmarks like the Nifty50 TRI, reaffirming their role in risk-adjusted wealth creation.

• The 68 long-only strategies tracked by PMSBazaar fared comparatively better than long-short peers, achieving an average return of 26.18% in 2024. However, this marked a decline from long-only offerings’ 37.92% average gain in 2023.

• Long-only funds in 2024 benefitted from selective equity exposure and concentrated bets on high-growth sectors, outperforming market indices such as the Nifty50 TRI and S&P BSE 500 TRI.

• Swyom Advisors (India Alpha Fund): Managed by Radha Raman Agarwal and Sweta Agarwal, this AIF employs a sector-agnostic, multi-strategy approach to generate superior risk-adjusted returns. By integrating long-term, short-term, and special opportunity strategies alongside covered call techniques, the fund balances growth and protection. Its multi-cap focus allows it to tap into opportunities across market segments, enhancing diversification.

• Nuvama Asset Management (Enhanced Dynamic Growth Equity [EDGE]): The AIF positions itself as a complementary addition to traditional long-only portfolios, aiming to deliver consistent equity-like returns over 1-3 years. By limiting downside risk during corrections and enhancing alpha generation over the long term, the fund maintains a high Sharpe ratio. This focus on lowering portfolio volatility without compromising return potential sets it apart from benchmark-hugging strategies.

• ICICI Prudential AMC (Enhanced Dynamic Equity Fund): This AIF is a dynamic equity fund aiming for long-term growth. It can invest long or short in stocks, using derivatives to manage risk. The fund managers with over 10 years of experience, focus on fundamental research to identify undervalued growth stocks and companies with strong fundamentals facing temporary market setbacks. This long-short offering aims to provide flexibility in investment strategies, potentially benefiting from both rising and falling markets. 

• Helios Capital Asset Management (India Long Short Fund): This long-short AIF employs a strategy with net exposure ranging from 30%-90% and gross exposure of 75%-175%. Long positions target growth opportunities, while shorts focus on liquid single-stock futures with sector-neutral bias. Portfolios hold 30-50 longs and 15-25 shorts, sized at 1%-2% each. Rigorous risk controls ensure diversification, liquidity, and sector limits for balanced returns.

• SBI Funds Management (Optimal Equity): This long-short AIF uses an asset allocation framework to determine net equity exposure. The long-only strategy involves a concentrated portfolio of high-conviction ideas, combining core and satellite investments. To manage volatility, equity derivatives are strategically utilised. The portfolio blends cash equities and derivatives, ensuring the net equity exposure aligns with the asset allocation framework, offering a balanced and disciplined investment approach

• A9 Finsight (Finavenue Growth Fund): Managed by Abhishek Jaiswal, this fund follows a sector-agnostic approach. Its portfolio is diversified across listed securities (40-45%), anchor and QIB investments (30-35%), and unlisted securities (25%). A strong focus on small- and mid-cap investments, with allocations to SMEs (45%), mainboard companies (35%), and Pre-IPO opportunities (20%), underscored its robust return strategy.

• Negen Capital Services (Negen Undiscovered Value Fund): Led by Jigar Dinesh Shah, this fund identifies undervalued opportunities with clear catalysts, such as corporate actions, regulatory shifts, and long-term industry trends. Its approach spans diverse market segments, including Special Situation Investments, Pre-IPOs, and anchor book investments, ensuring attractive risk-adjusted returns.

• Ampersand Capital Trust (Growth Opportunities Fund Scheme-1): This is a seven-year-old alternative investment fund that invests in a diversified portfolio of Indian equities. AGOFS employs a multi-cap strategy, aiming to capitalize on long-term growth opportunities across various market segments. The fund typically holds a concentrated portfolio of 30-35 stocks, focusing on companies with strong fundamentals and growth potential. 

• Motilal Oswal AMC (Growth Anchors Fund): The 1-year-10-month-old AIF has a dual investment objective. Firstly, it seeks to preserve capital by focusing on high-quality businesses with strong management teams, acquiring them at reasonable valuations while maintaining a robust risk management framework. Secondly, the AIF aims to generate capital appreciation by strategically investing in sectors and themes that are benefiting from favorable economic trends and have a high probability of success in the medium term. 

• Carnelian Asset Management & Advisors (Structural Shift Fund): This nearly 3-year-old long-only AIF targets wealth creation through India’s manufacturing and digital revolutions, investing in listed and unlisted companies with proven leadership and strong governance. Using proprietary frameworks to mitigate risks, it focuses on capturing opportunities driven by global shifts like Atma Nirbhar and SaaS platforms, projecting substantial growth in these sectors over the next five years.

2. Long-Only Funds:

While both categories faced a dip in year-over-year performance, the divergence in their average returns highlights the distinct approaches these funds employ. 

Long-only funds capitalized on market momentum to deliver robust gains, while long-short funds focused on managing volatility. 

Both categories, however, outperformed traditional benchmarks, showcasing the adaptability and alpha-generating potential of AIFs in a challenging market environment.

Deep Dive into Categories

Long-short funds represent a dynamic approach to wealth creation by leveraging market volatility and employing hedging strategies. These funds aim to generate alpha by taking both long and short positions, enabling them to navigate diverse market conditions effectively.

Top Performers in CY2024 

The following table highlights the top 10 long-short funds based on CY2024 performance, along with their CY2023 returns for comparison:

Top 10 long-short funds in CY2024

Category Trends

Long-short funds achieved an average return of 13.72% in CY2024, reflecting their ability to manage volatility amidst challenging market conditions.

While most funds delivered positive results, a few underperformed, highlighting the varied outcomes possible in this strategy. 

Notably, the top-performing funds displayed resilience through active hedging and tactical positioning.

Below is a table of long-short strategies as per return segments in 2024:

Long-Short Strategies by Return Segments in CY2024

Long-only funds focus exclusively on equity markets, aiming to capture long-term growth through concentrated investments. These funds often employ thematic or sector-specific strategies to maximise returns.

Top Performers in CY2024

The table below lists the top 10 long-only funds, showcasing their CY2024 and CY2023 returns:

Top 10 long-only funds in CY2024